The Power of Data: Stewardship, Integrity, and Growth in Financial Markets

Data has revolutionized the financial landscape, particularly for asset managers. By leveraging data effectively, asset managers can enhance their stewardship practices, make informed decisions with integrity, and ultimately drive business development and compliance. Let's delve into this crucial relationship so let’s take a look at the how and why of Stewardship as a critical factor in developing and maintaining the most successful portfolios:

Stewardship in investment strategies is at th heart of the responsible use of voting rights and influence that asset managers hold on behalf of their clients. It's essentially the duty of the asset manager to act in the best long-term interests of the companies they invest in, ultimately benefiting both the companies and the investors.

For the uninitiated, or frankly slightly confused by the changing definitions & requirements, here are some key aspects of how stewardship works - or should work - within the investing landscape:

• Voting Rights: Asset managers typically vote on resolutions at company shareholder meetings, influencing decisions related to executive compensation, board composition, and corporate strategy.

• Engagement: Stewarding investors go beyond just voting. They actively engage with company management to discuss issues like ESG (Environmental, Social, and Governance) practices, risk management, and long-term value creation.

• Transparency and Reporting: Investors expect asset managers to be transparent about their stewardship activities and the impact of their engagement efforts. This includes clear reporting on voting decisions and the rationale behind them.

Data Shortcomings in Stewardship:

While data plays a crucial role in effective stewardship, brands (asset managers) often fall short in the following areas:

• Data Quality and Accessibility:

  • Asset managers may struggle to access high-quality, consistent data on companies in their portfolio, particularly for ESG factors like environmental impact or social responsibility practices.

  • Data might be fragmented across different sources, making aggregation and analysis challenging.

• Data Literacy and Interpretation:

  • Asset managers might lack the expertise to fully utilize and interpret complex data sets related to ESG and other stewardship issues.

  • They may struggle to translate data insights into actionable recommendations for company engagement.

• Data Security and Privacy Concerns:

  • Sharing sensitive ESG data with companies during engagement might raise privacy concerns for both the asset manager and the company.

  • Striking a balance between transparency and data security is crucial.

• Lack of Standardized Data Reporting:

  • Inconsistent reporting standards for ESG data from companies make it difficult for asset managers to compare companies efficiently and make informed decisions.

Consequences of Data Shortcomings:

These data-related shortcomings can lead to several issues in stewardship:

• Suboptimal Voting Decisions: Without comprehensive data, asset managers might make voting decisions based on incomplete or inaccurate information.

• Ineffective Company Engagement: Limited data insights hinder asset managers' ability to identify key areas for improvement within companies and formulate impactful engagement strategies.

• Difficulty in Demonstrating Impact: If stewardship activities are not data-driven, it becomes challenging to quantify the impact of these efforts on company performance and long-term value creation.

Moving Forward:

• Collaboration: Collaboration between asset managers, data providers, and companies is essential to improve data quality, accessibility, and standardization.

• Investment in Data Analytics: Asset managers need to invest in data analytics capabilities and expertise to extract meaningful insights from available data and inform stewardship activities.

• Industry Standards: Advocating for industry-wide standards for ESG data reporting will enhance comparability and facilitate informed decision-making.

Some brands’ belief in Stewardship is easier to track than others. In their 2022 Stewardship Report leading Asset Manager Robeco were able to talk about Stewardship in Numbers, right through to their performance in Proxy Voting, Public Policy & Partnerships in addition to showcasing their spectrum of solutions on sustainability (Appendix B: legend) - they used that word btw, not RAO!

Enhancing Stewardship:

• Improved Due Diligence: Data analysis allows for a deeper understanding of investee companies. Asset managers can analyze financial statements, environmental and social impact data, and corporate governance practices to make more informed investment decisions that align with their values and client priorities.

• Active Ownership: Data empowers asset managers to engage constructively with companies in their portfolio. By identifying areas for improvement in areas like sustainability, risk management, or diversity, they can encourage positive change and enhance long-term value for all stakeholders.

• Transparency and Reporting: Data enables asset managers to provide investors with clear and transparent reports on their investment strategies and the impact of their stewardship activities. This fosters trust and strengthens relationships with investors.

Decision Making with Integrity:

• Data-Driven Insights: Data analysis can unearth hidden patterns and trends, revealing valuable insights that would be difficult to identify through traditional methods. This allows asset managers to make more informed and objective investment decisions, reducing the risk of bias or emotional influences.

• Risk Management: Data helps asset managers identify, measure, and manage various financial and non-financial risks associated with their investments. This includes climate risk, social unrest, and potential fraud, enabling proactive mitigation strategies.

• Compliance and Regulatory Adherence: Financial regulations are becoming increasingly complex. Data helps asset managers ensure compliance with these regulations by automating processes, monitoring activity, and generating reports.

Supporting Business Development and Growth:

• Identifying New Opportunities: Data analytics can uncover promising investment opportunities that align with market trends and client preferences. Asset managers can leverage data to identify undervalued assets, emerging sectors, and companies with strong growth potential.

• Client Targeting and Portfolio Customization: Data allows for a more personalized approach to client relationships. Asset managers can tailor investment strategies to individual client risk tolerance and ESG (Environmental, Social, and Governance) preferences, enhancing client satisfaction and attracting new business.

• Performance Optimization: Data can be used to optimize investment portfolios by identifying asset allocation strategies that maximize returns and minimize risk. This helps asset managers demonstrate value to clients and foster long-term business growth.

Challenges and Considerations:

• Data Quality: The effectiveness of data-driven decision making is heavily reliant on the quality of data used. Asset managers need robust data governance practices to ensure data accuracy, completeness, and consistency.

• Data Security: Protecting sensitive client and financial data is paramount. Adequate cybersecurity measures are essential to prevent data breaches and maintain client trust.

• Data Interpretation: Data analysis skills are crucial for extracting meaningful insights from vast amounts of data. Asset managers need to invest in training and expertise to properly interpret and utilize data effectively.Conclusion:

Data is a powerful tool that can empower asset managers to be better stewards, make more informed decisions, and achieve sustainable business growth. By harnessing the power of data responsibly and ethically, asset managers can contribute to a more transparent, efficient, and sustainable financial market.